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Cash flow challenges and how to solve them: Restaurants

Estimated Read Time: 6 Minutes

JESSICA LAMBERT , 27 January, 2023

Cash is king in any industry, but in the restaurant business it is particularly vital to carefully balance cash in and cash out. This blog examines the most common challenges faced by business owners and offers practical advice and solutions to help restaurants with their cash flow.

What are the challenges?

  • Fluctuating payroll – more so than in a lot of businesses, restaurant payroll can fluctuate up and down and this can be a nightmare for restaurant owners. The reasons for this are plentiful – seasonality, high staff turnover and varying hourly rates dependant on experience.  It requires careful scrutiny and management to ensure that costs are affordable and that the business remains profitable. Restaurant staff usually expect to be paid weekly, so paying them on time presents an ongoing pressure on cash flow and is a non-negotiable cost. Without a team the restaurant cannot remain open. It is a good idea to set a budget, either weekly or monthly and make it is adhered to. Forecasting can help to set the appropriate budget, taking in to account seasonality.
  • Not having time to forecast –  Knowing your numbers is paramount for business owners, but often finance slips down the priority list and becomes an after-thought. The benefits of forecasting and planning are enormous. Not only can you minimise surprises by planning ahead, you are also far less likely to be de-railed by an unexpected bill or the heightened cash flow pressures of peak season.
  • Seasonality – understanding the flow of money throughout the year means that you can plan ways to manage it in advance, rather than reacting in a panic when it is too late. Particularly in hospitality, depending where you are in the world, there will be times of year that are much slower than others and in those times you need to ensure you can keep your doors open. Unless you are very lucky, fixed costs like rent will remain the same all year round, so this usually requires that you scale back on flexible overheads like staff costs and readjust ordering according to customer demand. On the other hand, during peak season you will most likely need to accommodate paying temporary staff and allocate money for how payroll will change as a result.
  • Lack of contingency cash – like owning a car or a house, owning a restaurant comes with the risk of unexpected expenses. Whether that is a bill, a faulty appliance or another cost, it can have a big impact on your cash flow. Operating hand-to-mouth, without a cash buffer means that you run the risk of any such unexpected cost derailing your business completely. Keeping a contingency fund, as well as taking out insurance means that you safeguard the future of the business.
  • Relying on credit – if you want to stay on top of the numbers make sure you have an efficient way to manage your outstanding invoices. Cloud accounting software is great for providing an up-to-the-minute cash flow picture but use whatever suits you. If it worries you, where possible, try to pay for deliveries on arrival. There might be discounts available for paying immediately or within a week of delivery and so this method has multiple cash flow benefits.

What are the solutions?

  • Scrutinise your menu – Your menu can have a massive impact on your cash flow. Make sure you do not stock a lot of high price/low margin items – keep your menu concise – customers are usually overwhelmed by too many choices and you can concentrate on delivering fewer dishes to a high quality. Remove slower moving dishes from the menu altogether and keep inventory as low as possible to minimise waste. Make sure someone is in charge of monitoring stock – you are far less likely to have surplus stock to throw away or find your self out of pocket if you keep careful tabs on it all. Keep a close eye on how much your inventory costs – if your suppliers put their prices up then you need to consider doing that as well. Make sure that your menu looks great and is easy to understand and put high margin dishes in plain sight or on a ‘specials’ areas of the menu.
  • Shop around – use different suppliers and negotiate discounts wherever you can. Over reliance on a singular supplier may sometimes give you bulk discounts but one supplier is rarely the cheapest for everything and knowing that you are sourcing your ingredients elsewhere may make them more competitive. Bear in mind that if a delivery is late and you have to take popular dishes off the menu, it is your cash flow that suffers, so it is prudent to ensure that you have multiple people to call on for last minute requirements if you are suddenly let down.
  • Planning and forecasting – track your cash flow weekly to spot trends and fluctuations. Your future-self will thank you as you can use history to predict and forecast for the coming years. Ideally you would plan your budget at least six months ahead. If you are able to, look back over several years to avoid being driven off course by one off spikes or troughs caused by external factors.
  • Seasonality planning – Yearly budgeting does not always work with a restaurant due to the seasonal nature of sales so individual monthly or quarterly plans might suit you better. Remember to factor in changes to pay roll as your team size expands or reduces. If you are not confident planning and forecasting, ask an expert. There are now a wide range of companies offering part-time Financial Directors or you can ask you accountant. This type of support is exactly what they are there for and a good one will take an active role in advising you on all financial matters to do with your business. In addition to forecasting budgets and planning for payroll, seasonality may demand some attention on marketing. Online discount voucher sites or offers and promotions in local media will help you to fill tables during quieter months.
  • Business Cash Advance – Even with the right planning and management, cash flow is always a challenge. If you want to reinvest in your business, refurbish or take on a new premises for example, or if seasonality puts on too much pressure you could consider partnering with an external finance provider. If your restaurant business takes card payments and needs a cash flow boost then a Business Cash Advance (BCA) is the perfect solution. It works like a business loan but with flexible, instead of fixed, monthly repayments. You can borrow up to 125% of your monthly card takings, from £5,000 to £150,000+, and only pay back what you can afford.

For more SME advice and tips, read our related posts below. If you are the proud owner of a restaurant or are taking steps towards becoming one, get ahead of the competition by reading our article: 8 top tips on how to take your restaurant to the next level.

If you are experiencing cash flow challenges or want to realise your business growth plans, get in touch with our team of Funding Specialists today on 020 7839 9451 or email [email protected].





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